With improvement in the global credit markets and narrowing
of spreads, the Reserve Bank of India (RBI) decided today
to reintroduce the ceiling on interest rates that Indian
companies pay for external commercial borrowing.
The norms that take effect from January 2010, would permit
Indian companies to raise debt for three to five years by
paying up to 300 basis points above the London Inter-bank
Offered Rate (LIBOR). Those using the ECB window to raise
ECB-Bfunds for over five years would be allowed to pay up
to 500 basis points over Libor, RBI said in a communication
this evening.
RBI had lifted the restriction on ECBs in January, following
intensification of the global financial crisis after Lehman Brothers collapsed.
RBI also decided today to shut the special window that allowed
companies to buy back foreign currency convertible bonds to
reduce debt burden at the height of the global financial crisis.
The reintroduction of the cost ceiling and withdrawal of the
FCCB buyback facility are the latest in a series of rollbacks
RBI has introduced since the economic environment improved.
In late October, the central bank had decided to revert to
a statutory liquidity ratio of 25 per cent for Indian banks.
While the overall direction was to signal a check on excessive
inflows, RBI has eased ECB norms for telecom companies and
infrastructure-focused, non-banking finance companies.
In addition, companies engaged in the development of
integrated townships have been given another 12 months
(up to December 2010) to make use of the simplified norms
announced last year.
The simpler norms for telecom companies were an extension of
the October 2008 decision, when operators were allowed to use
ECBs to obtain 3G licenses. Now, they have been permitted to
use the route for payment of spectrum allocation, too.
A senior executive at a leading foreign bank said RBI was
signalling, through today’s moves, to check excessive flow
of capital into the country. “The high capital flows through
ECBs, FCCB and portfolio investment have pushed up the value
of the rupee against the US dollar. Another message is that
only high-quality companies should tap the overseas market,”
the executive said.
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